Wednesday May 3 Daily Market Primer

•         Stocks crept up
•         10yr < 2.3%
•          Health care bill stalled (again)
•        Apple earnings OK, dividends +10%

US stocks crept up again yesterday, with the S&P close to a record.  Auto shares fell on disappointing earnings, while tech led the market.  The Fed meeting ends today, everyone is hoping for some comments on balance sheet reduction.  The US 10 year is below 2.3% and oil fell 2.4% yesterday to $47.66. Overseas markets are not moving much, except for Japan and India, which are up, and US equity futures are slightly in the red.

DJIA	20,949.89	36.43	0.17%
Nasdaq	6,095.37	3.76	0.06%
S&P 500	2,391.17	2.84	0.12%
Russell 2000	1,399.36	-8.00	-0.57%
Global Dow	2,735.66	-3.53	-0.13%
Stoxx Europe 600	388.94	-0.59	-0.15%
Nikkei 225	19,445.70	135.18	0.70%
UK: FTSE 100	7,229.04	-21.01	-0.29%
CBOE Volatility	10.66	0.55	5.44%
Australia: S&P/ASX 200	5,892.30	-58.10	-0.98%
China: Shanghai Composite	3,135.35	-8.37	-0.27%
Hong Kong: Hang Seng	24,696.13	81.00	0.33%
Europe Dow	1,719.27	10.66	-0.09%
India: S&P BSE Sensex	29,894.80	-26.38	0.62%
France: CAC 40	5,289.62	-14.53	-0.27%
Germany: DAX	12,491.32	-16.58	-0.13%
Italy: FTSE MIB	20,661.02	-72.23	-0.35%
Spain: IBEX 35	10,814.60	-5.70	-0.05%
U.S. 3 Month	0.859	1/32
U.S. 2 Year	1.278	-1/32
U.S. 5 Year	1.816	-2/32
U.S. 10 Year	2.297	-4/32
U.S. 30 Year	2.977	-5/32
Germany 2 Year	-0.723	0/32
Germany 10 Year	0.324	2/32
Crude Oil	47.96	0.3	0.63%
Brent Crude	50.84	0.38	0.75%
Natural Gas	3.197	0.002	0.06%
S&P GSCI	378.51	0.37	0.10%
E-mini S&P 500	2383	-2.75	-0.12%

The latest version of the healthcare repeal and replace bill seems to be stalled in congress.  JP Morgan is the latest bank to announce several hundred job moves out of London.  Apple reported a mixed quarter, with quarterly revenue up 4.6%, something most companies would be happy with, but not so much for Apple.  Earnings beat at $2.10 per share vs. the $2.02 consensus.  iPhone sales fell .8%, which as everyone knows is the key driver for the company, and puts even more pressure on the iPhone 8.  As a consolation prize for less than stellar growth, the company raise the dividend by 10.5%, which by the way is the highest annual payout in the world, at $13.2 billion, surpassing Exxon’s $12.8 billion. The stock fell about 1.3% after hours.  It’s hard to be Apple sometimes.

Here’s the news:

Fed decision

At 2:00 p.m. Eastern Time the Federal Reserve will announce its latest monetary policy decision, with none of the economists surveyed by Bloomberg expecting any change in rates. With market-implied probabilities showing just over a 50 percent chance of two rate hikes by the end of the year, the statement will be scrutinized for further signaling of an increase next month. The bank's plans for reducing the size of its $4.5 billion balance sheet are also likely to be a central topic of discussion. There is no press conference following today's decision.

 

Trump's good call

The White House described a phone conversation between President Donald Trump and Russian leader Vladimir Putin, in which they agreed to step up cooperation on Syria, as "very good." The Kremlin said in a statement following the call that the leaders had agreed to a face-to-face meeting on the sidelines of July's G-20 summit in Germany. The president's other communications yesterday proved more controversial, however, after he tweeted that a "shutdown" in September would fix the logjam in Congress. 

 

Oil recovers

A barrel of West Texas Intermediate for June delivery was trading at $48.15 by 5:38 a.m., staging a recovery from yesterday's drop to a six-week low. The Organization of Petroleum Exporting Countries deepened production cuts in April with output falling by 40,000 barrels a day from a month earlier. Non-OPEC producer Russia will back an extension of the production cut deal that ends in June, according to a government official with knowledge of the matter.

 

Markets slip

Overnight, the MSCI Asia Pacific excluding Japan Index fell 0.2 percent. Markets in Japan and Hong Kong were closed due to a holiday. In Europe, the Stoxx 600 Index was 0.2 percent lower at 5:48 a.m. with miners leading the losses. S&P 500 futures slipped 0.2 percent as investors awaited the Fed decision. 

 

Brexit talks

In Brussels this morning, European Union chief Brexit negotiator Michel Barnier revealed his vision for how talks on the U.K.'s exit would progress. In Britain, Brexit Secretary David Davis flatly rejected a report in the Financial Times suggesting the bill for exiting the union could be as high as 75 billion euros ($82 billion), saying the U.K. would walk away from a deal with the bloc if provoked. The pound was trading at $1.2910 at 5:55 a.m. as the fractious atmosphere surrounding the negotiations shows little sign of improving. 

Here comes the Fed. The Federal Reserve will release its latest policy decision at 2 p.m. ET. While expectations are low for the Fed to raise rates at Tuesday's meeting, World Interest Rate Probability data provided by Bloomberg shows a 69.6% chance the central bank moves in June.
Le Pen and Macron debate. Far-right candidate Marine Le Pen and centrist Emmanuel Macron square off in one final debate on Wednesday before the second round of the French election is held on Sunday. The polls show Macron with a 20-point lead over Le Pen, Reuters says.
JPMorgan is prepping to relocate hundreds of London bankers. The investment bank will relocate "hundreds of people" to offices in Dublin, Frankfurt, and Luxembourg if the UK leaves the European Union, Daniel Pinto, head of investment banking at JPM, told Bloomberg.
Apple whiffs on revenue and iPhone sales. Apple earned $2.10 per share on revenue of $52.9 billion as iPhone sales came in at 50.76 million, flat versus a year ago.
Twilio crashes on guidance. Shares of the cloud communications company crashed 26% following Tuesday's closing bell after the company forecast an adjusted full-year loss of $0.27 to $0.30 on revenue of $356 million to $362 million. Both were well shy of expectations.
Etsy's CEO is stepping down. The company announced flat earnings, CEO Chad Dickerson is stepping down, and that it will eliminate about 80 jobs, or 8% of its workforce. Shares tumbled by up to 14% following the news.
Weight Watchers posts dynamite earnings. The weight loss company earned $0.16 per share, easily beating the $0.04 that Wall Street was anticipating, and raised its full-year earnings forecast to $1.40 to $1.50 per share from $1.30 to $1.40. Shares gained as much as 11.4% in extended-trading on Tuesday.
Stock markets around the world trade mixed. Australia's ASX (-1.4%) lagged overnight and Spain's IBEX (+1%) leads in Europe. The S&P 500 is set to open down 0.2% near 2,386.
Earnings reporting remains heavy. Molson Coors, Time Warner, and Yum are among the names reporting ahead of the opening bell while Facebook and Tesla highlight the list of companies releasing their quarterly results after markets close.

US economic data flows. ADP Employment Change will be released at 8:15 a.m. ET before Markit services PMI and ISM non-manufacturing cross the wires at 9:45 a.m. ET and 10 a.m. ET, respectively. The US 10-year yield is up 1 basis point at 2.30%.

Breaking Rank

The latest Republican effort to reshape the nation’s health-care system teetered on the brink of collapse in the House, reflecting a new assertiveness by GOP centrists, a group that in recent years has rarely wielded such power. GOP leaders said late Tuesday that they were still sewing up support for the bill, but the ranks of Republicans opposed or undecided on the bill swelled to numbers almost large enough to derail it. As of Tuesday, at least 21 House Republicans said they wouldn’t support the legislation, with a similar number undecided. The show of defiance suggests that GOP leaders may not be able to count on the cooperation of their centrist contingent on upcoming bills that could prove just as thorny as the health measure, including the president’s plan to overhaul the tax code.

Not Quite Ripe
Apple extended its rebound in the latest quarter with rising profit and revenue but reported tepid iPhone demand that adds pressure on the technology giant to deliver a hit with its new 10th-anniversary handset later this year. Shipments of its flagship product slipped 1% from a year earlier to 50.8 million iPhones, owing partly to continued weakness in China and to customers waiting for the forthcoming phone model, which is expected in the autumn. The overall performance adds evidence that the world’s most valuable company has stabilized its business after a slump in its latest fiscal year, during which weak sales of its core products and rising competition sent revenue and profit tumbling. The latest quarter’s increase in revenue was the second in a row, following three consecutive quarterly declines.

The Price Wasn’t Right
Entrepreneur Jeffrey Aronin said a few years ago that he hoped to eventually sell Marathon Pharmaceuticals, which he controls and runs, for billions of dollars. Some employees have said they now expect him to shut down the company. His deflated ambition is a sign of the increasingly hostile reaction to drug companies that specialize in sharply raising the prices of old medications. Mr. Aronin did that over and over again for 15 years, most recently after Marathon won approval in February to sell a drug for muscular dystrophy in the U.S. and set the price at $89,000 a year (some families had been paying $1,200 a year). It took only a month for sticker shock to cascade into criticism from families of patients, a shame campaign from members of Congress in both parties and then a surprise deal by Marathon to sell the treatment to another company.

·         Why currency traders should literally follow Trump tweets.

·         The curious case of the tail wagging the VIX.

·         Where the Arctic oil industry is booming. 

·         JPMorgan to move hundreds of staff to three EU offices on Brexit.

·         Beef prices soar after blizzard clobbers Midwest. 

·         Car thefts are surging in Mexico and police can't keep up.

·         Trump's trade warrior is the most unpopular economist in the class.

·         Fed Rate Rise Unlikely Wednesday, but Possible June Move in Focus

·         Donald Trump Raises His GOP Allies’ Stress Levels

·         Greek Austerity Deal Opens Up Potential Path Out of Bailout

·         Trump, Putin Discuss Crises in Syria and on Korean Peninsula

·         Facebook’s Female Engineers Claim Gender Bias
Auto Makers Report Steep Sales Declines in April

·         Trump Adviser Kushner’s Undisclosed Partners Include Goldman and Soros

·         Macron, Renault and the Future of French Capitalism

Emmanuel Macron's first place showing in the first round of the French presidential elections has diminished some of the interest in this Sunday's final showdown between him and Marine Le Pen. But obviously the results of the vote will still be a big event this weekend. If you look at euro-yen one-month risk reversals -- one measure of trader anxiety about the euro -- you can see that things are still a little bit tense relative to where they were earlier this year, though we're well off the levels seen in April ahead of the first round (the lower the line on the chart goes, the greater the premium people are paying for downside protection). So it's conceivable that if, as expected, Macron wins, there will be a bit of a sigh of relief. Meanwhile, something notable is that there's been virtually no discernible tightening in the polls. In fact, just this morning there's been a fresh survey showing Macron with a 20-point lead. In any case, tonight will see the one televised debate between the two candidates, perhaps representing the last chance for some kind of shakeup in the race.

Source: Bloomberg, BI, WSJ